Thursday, 9 January 2014

When Marxists disagree

From
outside, Marxism can appear an ideological monolith. Workers, so the story traditionally
goes, involuntarily supply their employers with surplus value and watch as the capitalists’
wealth exponentially increases, while they themselves get poorer. Through some
combination of the working class overcoming their false consciousness and
getting wise to the real situation and the unavoidable instability and
crisis-prone nature of the capitalist economic system, the crunch will come,
revolution will result and everyone will live happily ever after now that class
distinctions have been abolished. Amen.

The truth
is more complicated. Marxian economics - and it is economics that Marx was
fundamentally concerned with - is a much more contested field that you would
imagine. Two recent books by American Marxists, The Endless Crisis by John Bellamy Foster and Robert McChesney and
Andrew Kliman’s The Failure of Capitalist
Production illustrate the dissension.

At stake is
what causes economic crisis, more importantly, this economic crisis. Is it a growing gap, as Bellamy Foster and
McChesney maintain, between the endless production of goods and services and
workers’ finite ability to consume them, leading to stagnation? Or, as Kliman
says, the decline in the rate of capitalists’ profit, leading to stagnation
(alright, they do agree on some things).

Monopoly capitalism

We live,
say The Endless Crisis authors, in a
society dominated by very large monopolistic and oligopolistic corporations, a
trend which is only exacerbating through constant mergers and acquisitions. The
power of these giant corporations means they are able to extract more and more
profit (or in Marx-speak, surplus) from their workforce; profit that needs an
outlet and can’t all be absorbed by the consumption of wealthy investors. The
trouble is demand can’t keep up; the value of real wages in the US is lower
than it was in the 1970s. The result is slow growth and unused capacity – one-third
of the capacity of the US
automobile industry was unused in the run-up to the Great Recession, for
example.

In these
circumstances, speculative finance becomes irresistibly alluring, as the only
way to effectively deploy all the money that is being made. The portion of US national
income devoted to finance, real estate and insurance, say Bellamy Foster and
McChesney, has risen from 35% in the early 1980s to over 90% now. But the
escape promised by financial baubles like mortgage backed securities or credit
default swaps is illusory because they make crashes, like the one in 2008, far
more likely.

And the
promised escape is actually a trap because, once a crash has happened, the
political authorities can think of nothing but reinstalling the old casino
economy because they regard the ‘real economy’ as irretrievably stagnant. Think
of the UK
economic recovery, based on near zero interest rates and rising house prices.
“Rather than overcoming the stagnation problem,” write The Endless Crisis authors, “this renewed financialization will
only serve at best to put off the problem, while piling on further
contradictions, setting the stage for even bigger shocks in the future.”

What does
stagnation mean? It means lower wages, stalled careers, unemployment and
under-employment, lack of social mobility and periodic economic instability.
The authors quote older economists Paul Sweezy and Henry Magdoff, who, writing
in the late ‘80s, reflected on their formative experiences of fifty years
before: “For us economic stagnation in its most agonizing and pervasive form,
including its far-reaching ramifications in every aspects of social life, was
an overwhelming personal experience” But this is not the same for people who
grew up after the Second World War. “Under these circumstances,” they wrote, “they
find it hard to relate to what they are likely to regard as our obsession with
the problem of stagnation. They are not quite sure what we are talking about or
what all the fuss is over. There is a temptation to say: just wait and see,
you’ll find out soon enough.” We are now finding out.

Not quite recession

In one way,
Andrew Kliman doesn’t disagree with this prognosis. He, too, thinks we live in
a “new normal of not quite recession” and the future of the economy is likely
to be stagnation, interrupted by crashes. But, in another, he disagrees profoundly. For he traces the problems back to a completely different source, a
fall in the rate of profit. To Kliman, problems of “effective demand” (the
expression is from Keynes) are a red herring. Demand hasn’t fallen and, even if
it had, it wouldn’t matter. This is a complete reversal of standard left-wing
economic thinking which says that companies are compelled by competition to
introduce new technologies and cut costs, thus precipitating an ever-widening gap between supply and demand.

It’s fair
to say Karl Marx’s theory of the tendency of the rate of profit to fall is
commonly thought of, if it is thought of at all, as a historical curiosity. Or
just plain wrong. Many Marxist and radical economists were convinced that the
Japanese economist, Nobuo Okishio, had proved its falsity in 1961. Needless to
say, Kliman says he did no such thing.

This is how
the theory goes. Marx said that all value is created by labour. But as
mechanisation proceeds and edges out work performed by people, value or profit
decreases. Eventually this fall in the rate of profit causes a crisis. If – and
this is the important part – the destruction of capital value caused by this
crisis through bankruptcies, companies going bust and unemployment, is allowed
to happen unimpeded, the whole process can begin afresh. It becomes much
cheaper to buy companies and rate of return on profit resumes at a new peak. A
new boom ensues.

Even if
they don’t explicitly reject the theory, many Marxists say profit isn’t
falling. The Endless Crisis authors
say that the rate of profit fell during the nineteenth century under conditions
of competitive capitalism but it has risen since as monopolistic corporations
have ruled the roost. Indeed the rising amount of profit or surplus is a prime
reason for the crisis because it is diverted into speculation, having nowhere
else to go. Probably the most famous contemporary Marxist, Richard Wolff, says profit has gone wild in the US
as a result of falling wages.

Capitalism hasn’t
changed

Kliman says
this is all mistaken.
“Capitalism has changed far less than many people – its critics as well as its
supporters – want to think,” he writes. The rate of profit has fallen, though
this has been masked, initially by inflation and then by the fact that
economists used the wrong measure of profit. Kliman says radical economists,
for some reason, measure profit by what it costs to replace machinery as
opposed to the more common sense method of judging the rate of return on
advanced capital.

Not since
the Great Depression of the 1930s, says Kliman, has there been a free market
response to an economic downturn. Every subsequent downturn has been washed
away with government subsidies and debt guarantees. This ensures that the
downturns have not been half as severe as they otherwise might have been but
also that there could be no resultant boom because capital value was not
destroyed. The US
economy, he says, has never properly recovered from the recession of 1974. And
because of this the rate of profit has continued to fall, and is reflected, in
a delayed fashion, in increased debt and financial speculation.

Kliman’s
explanation does differ profoundly from what he calls the “conventional Left
account” and, rather than rejecting it or accepting it in toto, I think it
needs some interrogating. I think the most important questions are:

Firstly,
Kliman uses a method of measuring the rate profit – the rate of return on
advanced capital – which he says is meaningful to most people and to business itself. Given that, a
discernable decline in the rate of the profit should have been a major concern
of business over the past thirty years or so and hotly debated in the business
press. I’m not aware of this, so why hasn’t it happened?

Secondly,
Kliman says that in order for a fall in the rate of profit to be actualised,
prices have to fall. But inflation has been the norm at least since the Second
World War. The only area of decreasing prices for Western consumers I’m aware
of, is in the realm of cheaper clothes and the reason for that is
super-exploitation of garment workers in countries like Bangladesh and Vietnam, not mechanisation. And mechanisation, according to
the theory, has to occur in order for prices to fall and the rate of profit to
drop.

Thirdly, I
don’t believe demand is so irrelevant to capitalist economic health as Kliman
says. Kliman is a dyed in the wool demand-sceptic. He claims the post-World War
Two boom was not due to pent-up consumer demand or government stimulus but to a
resumption in a high rate of profit. But why did this reinvigorated rate of
profit not kick in in the late ‘30s, when the US slipped back into recession as
government stimulus was temporarily withdrawn? The pre-conditions of a new boom
were present, as capital value had been destroyed utterly in the downturn of
the early ‘30s. So why did it take the Second World War to put the Great
Depression out of everyone’s misery?

Kliman
maintains that the final consumer is not as important to capitalist economic
health as most radical economists think. Businesses can and do sell to other
businesses and investment spending has risen much more markedly than
consumption spending in the US,
over the last 75 years. That is why the economy grows at all. He is also at
pains to point out that only with a very selective use of statistics, can you
demonstrate that real wages have fallen in the US since the 1970s. Using another
method of calculating inflation, Kliman says, wages have risen markedly. And if
you measure total compensation, including employer social security and medicare
contributions, they show an unmistakable rise.

It is
widely accepted, certainly not just by the left-wingers or Keynesians, that
consumer spending supplies an integral part of economic growth, nearly two-thirds of economic activity in the UK. And it is indisputable that real wages are falling now - by an eye-watering 8.5% in Britain since 2009, according the state Office for National Statistics.At the same time, consumption is
forming a large part of the headline rise in GDP, an increase that, in the
absence of wage increases, can only come from savings or borrowing. Thus, I
think you can safely conclude that consumer spending is vital for economic
health and an important component of the profits of the financial sector. Consumer
demand is, at the very least, part of the story.

You can’t buck the
market

But, in
spite of these reservations, I do think Kliman’s insights are valuable, because
he has realised something that many Left Keynesians and Marxists don’t want to
face up to. Namely, that capitalism depends for its vitality on periodic destructiveness
and, in this sense, you can’t buck the market. Keynesianism was predicated upon
ending this instability but failed, as shown by the large-scale recession that
occurred in the mid-1970s. There is a fascinating table on page 53 of Kliman’s
book that gives GDP statistics for all regions of the world. It shows that
economic growth was higher in every single region of the globe between 1950 and
1973 than it was between 1973 and 2008. In many places, after 1973, growth fell
like a stone. Post-1973, the growth rate in Japan,
Europe, Latin America and Africa plunged by
more than half. Yes, you can say post-war reconstruction petered out, but a
seismic economic jolt clearly occurred in the 1970s, which no amount of
neoliberalism, declaring war on organised labour, exponentially increasing
credit or providing government support to failing financial institutions, has
been able to correct. As Kliman points out, all of our current economic
malaises – slow growth, slowly rising wages, spiralling inequality, financial
instability and debt crises – date from the 1970s, not the 1980s. In other
words, from before the neoliberal era and the supremacy of Thatcher and Reagan.

In this
acceptance that capitalism’s problems stem ultimately from the 1970s and that
Keynesianism, despite the hype, could not overcome the internal dynamics of
capitalism, Kliman has an equivalent in Britain, the economist Harry Shutt.
Shutt isn’t a Marxist and doesn’t believe that falling profit is to blame,
rather he traces the malaise to the need to find investment outlets for an ever
increasing volume of funds (a ‘wall of money’) and a decline, in the digital
age, in the demand for large-scale capital investment. Nevertheless Shutt, too,
thinks that governments attempts to evade recurrent system crashes by
intervening with subsidies and debt guarantees, have only resulted in insipid
growth, more instability, spiralling debt and a “postponing of the evil day”.
To him, Keynesianism is the problem, not the solution. As with Kliman, Shutt
thinks that the corporate debt overhang is too great to permit sustainable
growth. Artificial stimulation, from the outside, can’t work.

The intractable problem is that a fervent desire to avoid a
fully-played out crash of capitalism is not limited to ruling elites or
policymakers. Ordinary people are now are locked in to the success of the
system, not just through their jobs but through pension funds invested on the stock
market. Nobody wants a crash and the perception that, in Shutt’s words,
“preserving the status quo was an end that could justify almost any means” is
not confined to the summit of society. If there is another crash coming – and
the feeling of The Endless Crisis authors and Kliman is that it’s inevitable –
then it’s a sure-fire bet that governments will attempt to quench it with
public money. If it proves too big for that then all bets are off as to what
will ensue.

The lesson
of his analysis, according to Kliman, is that new regulations or laws cannot
break with the laws of capitalist production. A “somewhat comprehensive
socialisation of investment” as Keynes called for, won’t change the fact that
banks still have to exist in a capitalist economy. “Investment decisions cannot be based on what would enhance
workers’ well-being or fulfilment of public policy objectives,” writes Kliman.
“… a bank that dared to pursue these goals would soon find that lenders and
investors would not supply it with the funds it needed.”

The
pessimistic conclusion, although Kliman would describe it as sober and
realistic, is that institutional structures don’t matter. Neither enterprises
controlled by their workers or state enterprises represent a rupture with the
laws of capitalism and will just reproduce its flaws. In order to transcend
those flaws, you need a society governed by new methods of production and
exchange. Yet, workers’ control, or worker self-directed enterprises, is
thought of by growing numbers of people as a cure for capitalism. It is to this
debate that I want to turn to, next.

1 comment:

This piece reflects a lot of what I find most frustrating about much of the discourse of present-day "Marxist" economists. In particular it demonstrates a rather academic fixation with ancient and sterile debates such as whether or how the rate of profit has fallen, while at the same time suggesting a tendency to inhabit a vanished world where workers (the proletariat) still loom as a potential ruling class. Surely if Marx were around today he would be applying his (and Engels') crucial insight that technology determines productive relations and that changes in this field over the last 50 years or more have transformed the prospects for a post-capitalist world. Hence I would argue that it is high time for would-be radical economists to transcend transcend traditional Marxist economics and re-interpret the master's ideas in a modern context

About Me

Capitalism is not beautiful, said John Maynard Keynes. It is not intelligent, it is not virtuous and it not just. “But when we wonder what to put in its place, we are extremely perplexed.”
This blog is about the ideologies that mask the ugliness and injustice beneath the surface. And how our perplexity might be diminished.
You can contact me at idealogically@gmail.com